Japan Tobacco to Pay $1 Billion for Frozen-Food Maker

Source from:  By Mari Murayama Bloomberg News November 22, 2007 11/23/2007

Japan Tobacco, the biggest cigarette company in the nation, agreed Thursday to buy Katokichi, a frozen-food maker, for ¥109 billion, or $1 billion, to double food sales as the number of smokers dwindles in its home market. Katokichi stockholders will receive ¥710 a share, a 20 percent premium to the closing price Wednesday, the companies said in a statement Thursday. Japan Tobacco will then sell a 49 percent stake in Katokichi to Nissin Food Products, an instant-noodle maker, and the three companies will combine their frozen-food units. Japan Tobacco, the maker of Camel cigarettes, is moving into emerging markets and expanding food sales to reduce its reliance on Japan, where the percentage of men that smoke has fallen by half over the past 40 years. Japan Tobacco Camel cigarettes bought Gallaher in April to add Russian and European tobacco sales and is reported to be planning a bid for the Turkish state-owned Tekel. "We'd prefer Japan Tobacco to concentrate on their international tobacco business," said Erik Bloomquist, an analyst at JPMorgan Chase. "There's no reason for them to diversify away from tobacco." The president of Katokichi, Tetsuji Kanamori, was a senior executive at Japan Tobacco before he was recruited last year by the food maker. Japan Tobacco's sales of food like its "Roots" canned coffee and "Obento Dai-Ninki" spring rolls, gained 5.1 percent to ¥152 billion in the six months ended Sept. 30. The company's tobacco sales in Japan, which account for 59 percent of total revenue, fell 0.5 percent to ¥1.72 trillion in the period. Japan Tobacco, which is 50 percent owned by the Japanese government, is the biggest traded cigarette maker after Altria and British American Tobacco. Profit at Katokichi has been hurt by price competition with Nissin, Hiroshi Saji, an analyst at Mizuho Securities, said. "A cooperative relationship with Nissin is likely to have a positive impact on the company's earnings," he said in a report Tuesday. The offer from Japan Tobacco, which already owns 5 percent of Katokichi, will run from Wednesday until Dec. 26, the company said. Sapporo questions fund plan Sapporo asked the Steel Partners Japan fund, headed by Warren Lichtenstein, to provide more information on a business plan the beer maker's largest shareholder submitted earlier this month. Sapporo does not have enough information to respond to the proposals and wants to know within 10 business days if the plan is linked to the fund's takeover offer, the brewer said Thursday in a statement. Steel Partners Japan Strategic Fund urged the brewer to increase branding of its beers and seek strategic ties in soft drinks and food services, in a plan submitted Nov. 8. Lichtenstein's fund held a 17.52 percent stake in Sapporo as of Jan. 1 and has proposed taking control by raising its holding to 66.6 percent. Sapporo won stockholder approval in June to take steps designed to repel Steel Partners's proposal. The brewer said Thursday that it would decide on the offer by March 6. Steel Partners has made a series of failed takeover bids in Japan since 2003 and invested in more than 40 companies, seeking management changes and higher dividends. While the fund has made money, acquisition attempts have been thwarted as Japanese firms turn to defenses including poison pills and friendly tie-ups. Enditem